Indian rupee to slide after dollar powers to over 1-year high on Fed hike bets, risk-off

MUMBAI: The Indian rupee is set to decline at Wednesday’s open, with the dollar at a more-than-one-year high on Federal Reserve rate ​hike expectations and safe-haven demand.

The Indian rupee is expected to open in ‌the 94.80 to 94.85 range on Wednesday, traders said, after settling at 94.7350 per U.S. dollar on Tuesday.

The currency’s recovery, aided by lower oil prices and central bank steps, ​has run into headwinds this week on the back of rising expectations that ​the Fed will hike rates at its September meeting.

The U.S. ⁠central bank struck a much more hawkish tone at last week’s policy ​meeting, prompting analysts to revise their rate outlook, shifting from expectations of no ​hikes to pencilling in one or two increases this year.

The rupee has come under pressure recently despite oil prices extending their decline, with signs that more tankers stranded in the Gulf ​are set to move through the Strait of Hormuz.

Brent crude is quoting ​below $77 per barrel, taking its losses for the month to about 16.5%.

For the rupee, it’s ‌quite ⁠evident that oil is no longer the primary driver, a currency trader at a bank said.

“What is happening to the dollar and the episodes of risk-off we are seeing in Asia and the U.S. are now more of a ​catalyst,” the trader ​said.

From a flows ⁠perspective, conditions are improving to an extent for the rupee, the trader said, citing a pickup in foreign debt ​inflows and a slowdown in equity outflows.

Dollar on the march

The ​dollar index ⁠extended its rally with investors seeking shelter from a technology shares sell-off and positioning for potential Fed rate hikes.

The index was at 101.44, its highest since ⁠May last ​year, and is up about 2.5% this month.

FX ​is “a relative game”, and the dollar may continue to strengthen if U.S. rate expectations remain high, ​MUFG Bank said in a note.